Multiple choice

A and B are partners in a business sharing profits in the ratio of 5 : 3. They admit C as a partner with 1/4 share in the profits which he acquires 3/4 from A and 1/4 from B. He pays 4,000 as his share of Goodwill A and B will be credited by:

  1. 2,500 and 1,500 respectively

  2. 2,000 each

  3. 1,000 and 3,000 respectively

  4. 3,000 and 1,000 respectively
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

C gets 1/4 share. A gives 3/4 of 1/4 = 3/16. B gives 1/4 of 1/4 = 1/16. The sacrifice ratio is 3:1. Goodwill 4000 is divided in 3:1 ratio, resulting in 3000 and 1000.

AI explanation

The premium for goodwill paid by the incoming partner is distributed among the old partners in the ratio of the profit share they surrender. C's 1/4 share of goodwill is valued at Rs. 4,000, and he acquires 3/4 of this share from A, meaning A sacrifices 3/16 of the total profit. B surrenders 1/4 of C's share, giving a sacrificing ratio of A to B of 3 to 1. Distributing the Rs. 4,000 in this 3 to 1 ratio means A is credited with Rs. 3,000 and B is credited with Rs. 1,000. A and B will be credited by 3,000 and 1,000 respectively.

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